Fury as small firms pay over 90% in hidden loan costs: Pressure groups call for law forcing banks to publish rates when lending to businesses

Trap: Many small businesses are being stung by hidden charges on loans

Small companies taking out loans are being charged interest rates as high as 90 per cent, say campaigners who are demanding a change in legislation to force lenders to come clean over costs.

Pressure groups hope their calls will be considered as part of a review of lending to small companies launched this weekend by Parliament’s Select Committee on Business, Innovation and Skills.

Banks and other lenders are already required by law to publish the annual percentage rate they charge for loans, credit cards and mortgages, but they are not bound by the same rules when making loans to businesses.

Crucially such APRs take into account the cost of extra charges, which add significantly to costs.

The Campaign for Regulation of Asset Based Finance has written to representatives of the leading banks to call for a published interest rate to be mandatory.

Brian Moore, a spokesman for the campaign, said: ‘This single move would bring much needed clarity to the true price of asset-based finance and help clients compare the costs.’

He added: ‘Support is building and it has been breathtaking the number of businesses who have seen our blog and then rung us up saying they went for what looked like 2.5 per cent plus an admin fee that turned out to be an APR of more than 90 per cent.’

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Moore said the lack of an official APR calculation meant examples of loan rates given by lenders could be misleading because various fees, compulsory insurance and other charges could boost the total cost to something far higher than expected.

Campaigners have lobbied the Asset Based Finance Association – which counts all of the leading banks among its members – as it claims such lenders are the worst offenders.

James Sherwin-Smith of alternative finance platform Growth Street is wholeheartedly supporting the demands for the clear pricing of the cost of loans to small businesses.

He said: ‘I hope the Select Committee on Business, Innovation and Skills will back our campaign for an APR for all SME finance products.’